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| Author: | Almeida, H. Campello, M. Hackbarth, D. |
| Title: | Liquidity mergers |
| Journal: | Journal of Financial Economics
2011 : DEC, VOL 102:3 p. 526-558 |
| Index terms: | mergers assets capital budgeting corporate finance |
| Freeterms: | credit lines |
| Language: | eng |
| Abstract: | We study the interaction between corporate liquidity and reallocation of assets. Our model indicates that financially distressed firms face acquisition by liquid firms in their industries even if no operational synergies exist. We call these transactions liquidity mergers, as their purpose is to reallocate liquidity to companies being otherwise inefficiently terminated. We demonstrate liquidity mergers being more likely to occur in high industry-level asset-specificity and low firm-level asset-specificity. We analyze firms' liquidity managing methods as a function of real asset reallocation, investigating the trade-offs between cash and credit lines. We verify the model's prediction of liquidity mergers being more likely in industries where assets are industry-specific, but transferable across firms. We also show that the probability of using credit lines (relative to cash) is greater in industries in which liquidity mergers are more common. |
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